Porter: Competitive strategy
Competition is at the core of the success or failure of firms.
To questions for a competitive strategy:
 The attractiveness of the industry
 The competitive position (the relative position within the industry)
Both are dynamic and changes over time
Both can be shaped by a firm
The structural analysis of industries
- understand rules of competition
- the rules are embodied in five competitive forces:
o the entry of new entrants, the threat of substitutes, the bargaining power of buyers,
the bargaining power of suppliers, and the rivalry among the existing competitors.
o Together collective strength, favourable or intense pressure from one or more
Industry profitability is not a function of the product but of industry structure.
The five forces determine industry profitability because they influence the prices, costs, and
required investment of firms in an industry – the element of ROI (return on investments)
The strength of each of the five competitive force is a function of industry structure, or the
underlying economic and technical characteristics of an industry.
The five forces framework allows a firm to see through the complexity and pinpoint those factors
that are critical to competition in its industry.
Industry profitability are a function of the balance between supply and demand
Generic competitive strategies
Two basic types of competitive advantages a firm can possess: low cost or differentiation
- The significance of any strength or weakness a firm possesses is ultimately a function of its
impact on cost or differentiation – and they stem from industry structure! Meaning the
firms ability to cope with the five forces better than its rivals.
Three generic strategies:
- cost-leadership, differentiation and focus
- Focus is split up in cost focus (cost advantages) and differentiation focus ina narrow
segment
The competitive advantages is at the heart of any strategy
Cost-leadership
- Desire to be the low-cost producer of the industry
- Broad scope
- Serves many segments
- Typically selling a standard
Differentiation
- seeks to be unique
- attributes are valued by buyers – important to meet buyers needs
- must reduce cost in areas that do not affect differentiation
- must be different than rivals – but there can be more than one successful differentiator in a
industry whereas there only can be one cost-leader.
Focus
- rest on narrow competitive scope (a segment or a group of segments)
- either buyers with unusual needs or a production or delivery system that differs and serves
best different segments
Stuck in the middle
- engage in all 3 but fails to achieve any of them = no competitive advantages due to
inconsistent actions
- often a manifestation of a firms unwillingness to make choices about how to compete
- also afflict firms that compromise their generic strategy for the sake of growth or prestige –
instead a firm is better of finding a new industry
It is possible to have separate business units within the same corporate entity, each with a different
generic strategy.
Reducing cost does not always involve a sacrifice in differentiation.
Prahalad & Hamel : Core Competencies of the corporation
The root system that provides nourishment, sustenance and stability is the core competence.
You can miss the strength of competitors by looking only at their end products.
Core competencies are the collective learning in the organisation – coordinate diverse production
skills and integrate multiple streams of technologies.
- shared understanding of customers needs and of technological possibilities.
- Communication, involvement and deep commitment to working across organisational
boundaries.
- Blending functional expertise with those of others in new and interesting ways
- Knowledge fades if it is not used.
Cultivating core competence does not mean outspending rivals on research and development! OR
shared costs between two or more SBUs use a common facility or component – this is rationalizing
production. BUT do provide a logic for vertical integration.
CC’s provides potential access to a wide variety of markets
CC’s should make a significant contribution to the perceived customer benefits of the end product.
CC’s should be difficult for competitors to imitate. – and it is if it is a complex harmonization of
individual technologies and production skills.
CC’s are build through a process of continuous improvement and enhancement